GOL Pays Off Its $300 Million Loan Backed By Delta

GOL Linhas Aereas announced today that it has paid in full the US$300 million loan, plus accrued interest, that it took out in 2015. US carrier Delta Air Lines guaranteed the loan. Last week, some financial analysts pointed out that the Brazilian low-cost may not pay it, forcing Delta to do it.

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GOL paid a US$300 million loan it got in 2015. Photo: Getty Images.

GOL’s liquidity took a hit

The most critical asset for airlines right now is liquidity. Amid the pandemic, carriers have to save as much cash as they possibly can. We’ve seen the measures some companies worldwide have taken to reduce its burn cash.

Some airlines, like GOL, are burning half a million dollars a day. Others, like Delta, were spending up to US$100 million a day by the middle of the second quarter.

Nevertheless, GOL’s reserves are not infinite. In its second-quarter results, the company said,

“GOL maintained a strong liquidity position […] ending the quarter with R$3.3 billion in cash and receivables.” It had over US$600 million in liquidity.

Now, after the payment of the loan, GOL closed August with approximately R$2.1 billion (US$391 million) of liquidity in cash and receivables. The company added that its total liquidity, including deposits and unencumbered assets, is R$5.7 (over one billion dollars).

Nevertheless, the payment of the loan will hit GOL’s financials.

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The airline now has approximately US$391 million in cash and receivables. Photo: GOL Linhas Aereas

Now, what will happen with GOL?

When GOL signed the US$300 million loan, the air industry was different. In the first place, GOL had a deep connection with Delta Air Lines, which is why the US carrier agreed to guarantee the loan. Since then, Delta left GOL and signed a new joint venture agreement with LATAM Airlines Group, and the COVID-19 pandemic arrived.

The Brazilian airline couldn’t have imagined that an unprecedented crisis would hit the world in 2020. Now the carrier is trying to raise liquidity while it recovers the demand it has in Brazil.

On a bright side, GOL claims it no longer has long term debts expiring soon. It said,

“Going forward, we have no significant debt maturities until 2024,” stated Richard Lark, GOL’s CFO. “This is a reflection of the Company’s commitment to strengthening its balance sheet over the last four years.”

GOL Pays Off Its $300 Million Loan Backed By Delta
Brazilian air industry is recovering from the COVID-19 pandemic, but it is still far from 2019 numbers. Photo: GOL Linhas Aereas.

What’s up with Brazilian aviation?

Overall, Brazilian aviation has tried to recover from the current coronavirus pandemic. In July, the International Air Transport Association (IATA) said that domestic RPK’s in Brazil were 77.7% lower than a year ago. This amount was a slight uptick from an 84.9% fall in June. The country’s load factor was 75.2%, the biggest percentage among the surveyed markets by IATA. The organization said,

“Country’s higher load factor relative to the other markets reflects more slowly recovering capacity amidst airline bankruptcies in the region rather than improving passenger demand.”

Meanwhile, the Brazilian government increased its airline bailout two weeks ago. The Civil Aviation National Agency (ANAC) of Brazil claims that the air industry has recovered slightly from April to July.

In April, the demand fell by 95%, but it had recovered to -81% by July. While these percentages are far from ideal, it shows a small optimistic recovery in Brazil. Additionally, the Brazilian airlines are working towards a big push in the near future. Azul launched its regional carrier Azul Conecta; LATAM Brazil signed its codeshare agreement with Azul; the bus company Itapirim is planning its new airline, Ita Linhas Aereas, to fly in 2021.

What do you think of GOL’s recent developments? Let us know in the comments.